Mortgages Are a Way to Raise Cash
Second mortgages on Oakville homes can be a very
useful financial tool in certain situations. The typical Canadian homeowner
takes out a first mortgage on a home at the time of purchase; a ‘second’ comes
later, as its name suggests.
is a good way to raise a lump sum of
capital, using the equity in your home as security. There are many times in a
homeowner’s life when this might be necessary – an emergency expense, home
renovations, purchasing another property, or children’s education costs are
good examples. Additionally, by using the home’s equity, it can be a way of
consolidating debt or easing a cash flow crisis caused by mortgage or tax
In general, the rate of interest charged on a second
mortgage is less than that of credit cards and personal loans. Again, this is
because there is a fixed asset involved – the equity available in the home.
Unlike in the States, mortgage payments are not tax
deductible, although there are tax strategies that can work around this. For
example, if your home is used for your business; a portion of your mortgage
payments can then be deducted as an expense.
Another big advantage of taking out a second mortgage
is that rates are currently at historic lows and the interest you are paying on
your heftier first mortgage is probably pegged at a very reasonable rate. A
second mortgage will leave that "alone”.
- Another Option
There are drawbacks to the second mortgage. Because it
ranks lower in priority than the first, it will be pegged at a higher rate of
interest. It has to be paid and, if payments are in default, a house can be
foreclosed upon. Your debt load is increased and there is always the
possibility of a crash in house prices leaving the mortgage debt on your home
greater than its actual value.
A Home Equity Line of Credit or HELOC is another
option. It is used as a way to raise money for a purpose other than purchasing
a home and it is convenient if that need for cash is stretched out over time.
For example, a HELOC is useful if a child has tuition payments over a number of
years. Ongoing home renovation is another situation favouring a HELOC.
The interest rate on a HELOC is adjustable, because it
does in fact take place over time. It can be paid off, and then reopened.
Your Mortgage – A Third Option
may involve renegotiating the terms of your first
mortgage – again, a consideration in a time when many first mortgages have been
negotiated at low rates. You can refinance your mortgage at up to 85% of the
available equity in your home; this increase would be added to your first
You can find a mortgage broker by going online – or
through the membership list of the professional association, Canadian Association of Accredited
Mortgage Professionals (CAAMP). Ask your financial services
provider which of the solutions – HELOC, a second mortgage in Oakville, or refinancing
– is the best choice for your situation.